The bond indenture for the 10-year, 10% debenture bonds dated January 2, 2014, required working capital of $142,000, a current ratio of 1.7, and a quick ratio of 1.2 at the end of each calendar year until the bonds mature. At December 31, 2015, the three measures were computed as follows:

a. List the errors in the determination of the three measures of liquidity analysis.
b. Is the company satisfying the terms of the bond indenture?

Transcribed Image Text:

1. Current assets: Cash $170,000 Temporary investments Accounts and notes receivable (net) Inventories... Prepaid expenses . Intangible assets.. Property, plant, and equipment Total current assets (net) Current liabilities: Accounts and short-term notes payable. ... 80.000 200.000 60,000 40.000 208.000 92,000 850,000 $160.000 340,000 Accrued liabilities . Total current liabilities 500,000 $350,000 Working capital.. 2. Current Ratio. 3. Quick Ratio. $850,000 + $500,000 1.7 $192,000 + $160,000 1.2